Oil and gas giants to face parliamentary inquiry into the tax and royalties they pay

Tax avoidance by multinational oil and gas companies – and the rigour with which the federal government ensures they pay a fair share for the offshore riches they exploit – will be put under the spotlight of a Parliamentary inquiry.

Twelve months after Fairfax Media first raised concerns about the public missing out on the wealth created by the gas boom, Labor and the Greens were separately moving on Tuesday to establish a formal investigation into rent taxes and royalties collected from the $200 billion-plus offshore gas se

Banks, Appl How some companies cut billions off their tax bill

Big companies can get very creative with their tax avoidance strategies, including global resource giants Chevron and Shell.

The ability of companies to reduce their liabilities through billions of dollars in deductions on operating and capital costs was laid bare by the federal Auditor-General in a damning report on Monday.

On Tuesday, Labor ended months of internal deliberations to back an inquiry into the profits-based tax that applies to the bulk of offshore projects, the petroleum resource rent tax, and the royalty scheme that applies to the 25 year-old North West Shelf project, investigated by Auditor-General

The ability of companies to reduce their liabilities through billions of dollars in deductions on operating and capital costs was laid bare by the federal Auditor-General in a damning report on Monday.

“Responsibilities and effectiveness of state and federal government departments in administering the existing PRRT and Commonwealth royalty regime,” would also form part of the inquiry.

Mr Hehir’s report revealed a hands-off approach taken to enforcing the royalty take from the North West Shelf, with state and federal bureaucrats basically allowing the operating company – a partnership between Woodside, BP, Chevron, Shell and BHP Billiton, to self-assess its liabilities.

Labor senator Jenny McAllister said the Auditor-General had raised “serious questions about the efficacy” about the collection of royalties.

“This issue needs proper examination – and Labor will use the inquiry into Corporate Tax Avoidance to do that,” She said.

But Greens senator Peter Whish-Wilson insisted the system had failed under governments of both stripes over decades and must be investigated thoroughly.

“It looks like Australians might be being fleeced for hundreds of millions in dollars in oil and gas royalties because Liberal and Labor Governments have either been asleep at the wheel for the last two decades, or they don’t see tackling their big corporate backers as a priority,” he said.

“These aren’t your traditional tax avoidance issues that Parliament has been looking at over recent years.

“This is about an successive Australian governments not even checking if billions of dollars in tax deductions were allowable under law. This is about a government department not even testing the meters on the oil and gas wells to see if they were working.”

Separately on Tuesday, Treasurer Scott Morrison released more detail on the government’s proposed diverted profits tax, part of a $200 million crackdown on profit-shifting multinationals.

The Australian Tax Office will be able to impose a penalty tax rate of 40 per cent on arrangements that are caught in breach of the rules once the legislation – still in the exposure draft stage – passes Parliament.

Fairfax Media has revealed over recent months that just 5 per cent of 150 oil and gas ventures are paying any PRRT, despite Australia being poised to eclipse Qatar as the world’s single biggest exporter of LNG by 2020.

The industry has built up a mountainous $187 billion in exploration and development tax credits, which continue to rise sharply and will be used to insulate the multinational petroleum companies from having to pay any resource rent tax for years to come.

According to a Treasury briefing to the Western Australian government, it could be decades before projects such as Chevron’s Gorgon LNG plant and others pay a cent in PRRT.

Among the concessions accumulated by the industry since the PRRT’s imposition under Labor is a write-off for “frontier exploration” in deep water that allows a company to claim 150 per cent of exploration costs back from the Australian Tax Office.

In 2010, Ken Henry’s review of the tax system raised concern about the PRRT’s “failure to collect an appropriate and constant share of resource rents from successful projects due to uplift rates that over-compensate successful investors for the deferral of PRRT deductions”.

Paddy Crumlin, president of the International Transport Workers’ Federation, which has pursued the PRRT issue, welcomed the renewed political focus.

“Any move from within the Parliament for greater scrutiny and transparency on a tax which is demonstrably failing to deliver appropriate benefits to the Australian people is a positive step,’ he said.